Disney’s Magical Investment Ride Continues

DIS keeps breaking into new all-time highs on earnings success

As it turns out, it isn’t a small world after all. In fact, it’s a mighty big world for Walt Disney (NYSE:DIS), which is pretty much knocking it out of the park for shareholders.

The worldwide entertainment and media company — with one of the most distinct brands on the planet — just completed a third quarter that saw Mickey & Co. post the largest quarterly earnings in company history at $1.8 billion, or $1.01 per share, surprising Street analysts who expected 93 cents per share.

The news helped the stock (not that it needed it) continue to break into new all-time highs above $50 per share. DIS is up 34% year-to-date and has gained more than 50% in the past 12 months.

All for a stock that is showing a dividend yield of 1.2%. While most blue-chips have been buoyed of late thanks to attractive dividends, investors in DIS primarily have been in it for the share price appreciation.

And why not? It’s all good in Disney World right now.

Disney is a full-on media and entertainment company, with operations in media networks, parks and resorts, consumer products — and perhaps most importantly today, studio entertainment. And each of the segments contributed to the most recent profit blowout:

  • Media Networks includes Disney channels and ABC and ESPN, and is Disney’s largest division. Third-quarter revenue grew 3% to just over $5 billion, and operating income rose 7% to $268 million.
  • Parks and resorts includes Disney theme parks and cruise line operations, and revenues increased 9% to $3.44 billion, with operating income up 21% to $630 million.
  • Consumer products — like those Mickey and Goofy ears you see emerging from airline runways coming back from Orlando — rose 8% to $742 million, with operating income up 35% to $209 million, helped by increases in online sales.

But perhaps the shiniest star in the Magic Kingdom’s world is the Studio Entertainment division, which includes the company’s movie business. Revenues were flat at $1.62 billion, but the success of The Avengers drove operating income up to $319 million, well above last year’s $49 million quarter. The Avengers alone already has grossed more than $1.49 billion in ticket sales worldwide, including $616 million in the U.S.

So where can Disney go from here?

It’s hard to imagine DIS can maintain a torrid 30% growth pace in the stock price. It’s a little pricey compared to other media and entertainment conglomerates like Time Warner (NYSE:TWX), CBS (NYSE:CBS) and Viacom (NASDAQ:VIAB). Still, considering Disney’s past results and future potential, its price-to-earnings ratios look pretty reasonable.

Company Ticker Trailing P/E Forward P/E
Walt Disney DIS 17 14.5
CBS CBS 16 12
Time Warner TWX 11 11
Viacom VIAB 14 10

But the most promising news has very little to do with metrics. Also alongside the report, Disney let loose that Joss Whedon — the writer/director of The Avengers who also has a cult following thanks to hits like Buffy the Vampire Slayer, Firefly/Serenity and Angel — has been signed up to write and direct a sequel, The Avengers 2, as well as help develop a new live-action Marvel TV series for ABC.

As for that dividend … while chinsy now, and while increases for the most part haven’t been as frequent or drastic as many would like, Disney did bump it up from 35 cents to 40 cents two years ago, then boosted it by 50% in late 2011. Considering the company’s continued success — and DIS’ lackluster payout ratio of 22% — there’s plenty of reason to think another hike could be on the horizon.

If you’ve already been in Disney stock for some time, no one will blame you for cheering, “I’m going to Disney World!”

But I’d buy a few more shares before you pack.

Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he was long TWX.

Article printed from InvestorPlace Media, https://investorplace.com/2012/08/disney-continues-the-magic-ride-for-investors-dis-cbs-viab-twx/.

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